October 2009

October 30, 2009

The House Energy and Commerce Committee approved a version of the Consumer Financial Protection Agency Act of 2009 (H.R.3126) on Oct. 29, 2009. However, a manager's amendment would create an agency with a structure different from what was set out in the bill approved by the Financial Services Committee—a commission with a five-member board rather than an agency with a single director. Financial Services Committee Chairman Barney Frank, D-Mass., and Ranking Member Spencer Bachus, R-Ala., have disagreed over the change. According to Rep. Frank, “Going from a single executive able to act promptly and efficiently to a five-member commission with staggered terms will weaken the capacity of the agency to provide consumer protection.” On the other hand, Rep. Bachus quoted President Harry S. Truman in equating an efficient government with a dictatorship.

Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan have calledon Congress to approve three measures to improve housing and the housing market for Americans: extension of the First Time Homebuyers Tax Credit for a limited period; extension of higher loan limits for home mortgages; and secure funding for the Housing Trust Fund. The administration supports a limited extension of the First Time Homebuyers Tax Credit, which currently is set to expire on Dec. 1, 2009; a one-year extension of the current loan limits for the Federal Housing Administration, Fannie Mae, and Freddie Mac; and $1 billion in funding for the Housing Trust Fund. House Financial Services Committee Chairman Barney Frank, D-Mass., has supported the White House call to action,callingthe Trust Fund socially and economically necessary and saying that higher GSE loan limits are needed to address market differences.

The Financial Stability Oversight Board has issued its fourth quarterly report to Congress, which covers the period from July 1, 2009, through Sept. 30, 2009. According to the report, “the accumulated effects of Treasury's actions under TARP contributed significantly to improved conditions in many financial markets during the quarterly period.”

Pointingout that virtually nobody has had time to read the proposed financial system regulatory reform bill currently being considered by the House Financial Services Committee, committee Republicans have called for more time to study and understand the draft legislation. Aletter signed by 22 Republican members charged the committee was acting with a speed that was “unprecedented and unnecessary.”

October 29, 2009

Proposed new authority that would allow the government to step in and resolve large, failing financial institutions would not result in a category of firms deemed too big to fail, Treasury Secretary Tim Geithner assured Congress on Oct. 29, 2009. Geithner told the House Financial Services Committee that the proposed legislation, announced a day earlier by the Treasury Department and the committee, would mean that if systemically important firms got themselves in the position where they could not survive on their own, “then the only authority we would have is to manage their failure.” Committee Chairman Barney Frank, D-Mass., said he hoped to mark up the legislation next week.

The House Financial Services Committee approved the Accountability and Transparency in Rating Agencies Act(H.R. 3890) by a vote of 49-14. The bill is intended “to curb the inappropriate and irresponsible actions of credit rating agencies which greatly contributed to our current economic problems,” according to principal sponsor Rep. Paul E. Kanjorski (D-Pa.), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

The Office of the Comptroller of the Currency has released OCC Working Paper 2009-5“Correlation in Credit Risk", by Xiaoling Pu and Xinlei Zhao which examines the correlation in credit risk using credit default swap (CDS) data. The researchers found that the observable risk factors at the firm, industry, and market levels and the macroeconomic variables cannot fully explain the correlation in CDS spread changes, leaving at least 30 percent of the correlation unaccounted for.

October 28, 2009

Reworking roughly $180 million in guaranteed bonus contracts that come due at American International Group’s financial products division next year is a “top priority,” Special Master for TARP Executive Compensation Kenneth Feinberg told Congress October 28. “We will see what we can work out with AIG going forward in an effort to satisfy the statute, satisfy the regulations, satisfy the American people. And I view that as a top priority,” Feinberg told the House Oversight and Government Reform Committee.

The House Financial Services Committee has passed by a vote of 67 to 1 the Private Fund Investment Advisers Registration Act of 2009 (H.R. 3818), which would require managers of most hedge funds, private equity funds and venture capital funds in the U.S. to register with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The existing exemption for investment advisers with fewer than 15 clients would be eliminated, and specific information reporting would be required for advisers to any “private fund.” A limited exemption would continue to apply to certain “foreign private advisers.” The existing threshold of $30 million of assets under management for mandatory SEC registration would continue to apply.

The Federal Housing Finance Agency has reported that the average interest rate on conventional 30-year, fixed-rate mortgage loans decreased 7 basis points to 5.23 percent in September. The average interest rate on 15-year, fixed-rate loans increased 15 basis points to 4.77 percent in September. These rates pertain to mortgages closed during the September 24-30 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed. Thus, according to the agency, the reported rates depict market conditions prevailing in mid to late August. Recorded information on this index is available by calling (202) 408-2940. The October index value will be announced on Nov. 24, 2009.